E17.11. Spot the Red Flags in a Cash Flow Statement: EDS and Cerner Corporation (Medium) Below are portions of the cash flow statements for Electronic Data Systems (EDS) and Cerner Corporation. Spot the red flags.

ELECTRONIC DATA SYSTEMS AND SUBSIDIARIES (in millions) Years Ended December 31, 2001 2000 1999 Cash flows from operating activities Net income $1,363 $1,143 $ 421 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,482 1,431 1,436 Deferred compensation 98 101 113 Asset write-downs, including acquired in-process R&D 91 43 129 Other (340) (187) (229) Changes in operating assets and liabilities net of effects of acquired companies: 1 Accounts receivable and unbilled revenue Prepaids and other Accounts payable and accrued liabilities Deferred revenue income taxes Total adjustments Net cash provided by operating activities CERNER CORPORATION in thousands) (882) (386) (185) 202 (87) 90 (481) (305) 368 (138) (155) 162 327 (38) (369) 359 416 1,515 1,722 1,559 1,936 Six Months Ended June 29, 2002 June 30, 2001 Cash flows from operating activities: Net earnings (loss) $24,310 $(62,655) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 27,168 23,580 Common stock received as consideration for sale of license software (750) Write-off of goodwill impairment Gain on sale of investment 1,272 (4,308) Realized loss on sale of stock 385 Write-down of investment 127,615 Gain on software license settlement (7,580) Non-employee stock option compensation expense 34 55 Equity in losses of affiliates Provision for deferred income taxes (29,627) 1,093 (44,801) Changes in assets and liabilities (net of business acquired Receivables, net (28,817) (4,582) Inventory (1,405) 1,166 Prepaid expenses and other (4,400) (5,601) Accounts payable 4,895 6,544 Accrued income taxes 35,413 5,958 Deferred revenue (12,641) (8,304) Other accrued liabilities 13,443) 1,160 Total adjustments (15,860) 96,040 Net cash provided by operating activities 8,450 33,385 CERNER CORPORATION In thousand Six Months Ended June 29, 2002 June 30, 2001 Cash flows from investing activities: Purchase of capital equipment (21,493) (8,150) Purchase of land, buildings, and improvements (5,484) (4.356) Acquisition of business (13,429) Investment in investee companies (1,292) Proceeds from sale of available-for-sale securities 90,119 1,572 Issuance of notes receivable (100) Repayment of notes receivable 89 Capitalized software development costs (22,915) (18,179) Net cash provided by (used in) investing activities 26,798 (30,416)